Acacia Looks to Profit From Lonely IPO

Acacia Communications has rushed in where other technology startups fear to tread. The optical components specialist filed for an initial public offering while other companies with similar aspirations are deliberately slowing their progress through the IPO pipeline to see how the money reacts to roiling global markets.

Adena Friedman, president and CEO of Nasdaq , told The Wall Street Journal today that multiple companies that had intended to go public this month are holding off until February. Friedman, who is attending the annual gathering of the Masters Of The Universe in Davos, Switzerland, did not identify any of the IPO candidates.

"We have a very healthy pipeline of tech companies who want to come into the US markets," she told The WSJ. "It's a matter of whether or not the markets are ready to receive them and whether the investors are feeling confident enough to open their wallets."

China, currently the world's most troubled big economy, doesn't seem to want IPOs. The China Securities Regulatory Commission on Tuesday approved seven IPOs, and that news caused the exchange to drop nearly 6%, according to the Shanghai Daily.

IPO activity hit an all-time high in 2014, with about 275 IPOs. The number of IPOs in 2015 dropped to 169; the amount raised per IPO was down too, according to statistics compiled by Renaissance Capital. Fewer still are expected this year. That many of the companies that went public in 2013 and 2014 (including GoPro, Twitter and Barracuda Networks) are trading well below their IPO prices is not helping.

Yesterday, Cree Inc. (Nasdaq: CREE) told investors its spinout of Wolfspeed Semiconductors (which specializes in SiC and GaN chips) and Wolfspeed's associated IPO will be delayed until at least the second half of this year.

Want to know more about communications ICs? Check out our comms chips channel here on Light Reading.

Streaming music startup Deezer delayed a planned IPO for months and finally gave up; the company just closed a $109 million round of funding. Puppet Labs , which sells IT automation software, also cancelled an IPO and went for another round of vencap.

Companies as varied as Univision , Nieman-Marcus and Albertsons are all waiting to pull the trigger on IPOs.

When Acacia Communications Inc. was preparing for its December filing for a $125 million IPO, it may not have been clear that China was going to figuratively curl into a fetal crouch, or that the price of oil would plummet so far, but there were plenty of signs that the global economy would get even more wobbly in 2016.

Making a clear profit on estimable margins can be emboldening, though. The company doubled revenue from 2013 to 2014, from $77.7 million to $146.2 million. The company needed only the first nine months of 2015 to far exceed its 2014 income; it brought in $170 million through September, according to the company's S-1 filed with the Securities and Exchange Commission (SEC).

The company reported a 2014 profit of $52 million in 2014, and of $63 million in just the first nine months of 2015. Margins were steady at 36%.

Interconnect in the relatively lower speed range (10G, 40G, 50G, 100G) is being sold into the data center market. Interconnect at faster speeds (100G, 200G, 400G) is currently more common in long haul communications, but data center operators will accelerate to the next faster speed increment the second it's practical to do so.

In large part, "practical" means "cheap." Data center operators place tremendous pressure on optical interconnect vendors to keep lowering their prices, making the market exceedingly competitive. For this reason, financial analysts tend to view public interconnect suppliers such as Finisar Corp. (Nasdaq: FNSR), Oclaro Inc. (Nasdaq: OCLR) and NeoPhotonics Corp. (NYSE: NPTN) with caution, if not suspicion.

Acacia integrates its own digital signal processors (DSPs) with silicon photonics to create coherent optical interconnect modules. The company's interconnect products run from 40 Gbps to leading-edge 400 Gbps.

The company claims over 20 customers, and it is getting 58% of its revenue from the data center market.

There are significant differences of opinion on the prospects of silicon photonics vis-à-vis other new technological options, but current technology appears to be nearing fundamental physical limits, and one innovation or another must win out. (See Latest Modules Drive Market Toward 400G.)

It all bolsters Acacia's argument that its prospects are good. With a good financial story to tell, Acacia might even profit from having less competition for IPO money.

— Brian Santo, Senior Editor, Components, T&M, Light Reading

nasimson 1/22/2016 | 9:46:56 PM
Bearish markets Little odd that global equity markets are not welcoming ipos. With commodity prices low, oil prices plummeting .. IPOs should be welcomed as the limited opportunity of growth in otherwise bearish markets.
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